Secured Transactions

Question 1

Article 9 governs…?

Answer 1

security interests and applies to any transaction that creates a security interest in personal property, including goods, inventory, equipment, accounts, documents and instruments. Article 9 applies broadly to transactions that create a security interest in personal property or fixtures by contract.

Question 2

ST “lease”

Answer 2

A true lease of goods does not create a security interest. But, a transaction that appears to be in the form of a lease may actually be a secured transaction, creating a security interest. The transaction may be categorized as a secured transaction if the lessee must pay consideration to the lessor for the right to possess and use the goods for the term of the lease, the payment obligation cannot be terminated by the lessee, and one of four conditions is met, lessee (1) has an option to become the owner of the goods, (2) no additional consideration is paid or (3) nominal additional consideration is paid, upon completion of the lease agreement.

Question 3

For a secured party to have valid interest in the collateral, it must first ______.

Answer 3

Attach

Question 4

Attachment requires…?

Answer 4

(1) Value given by the secured party
(2) The debtor must have rights in the collateral (some property interest in the collateral).
(3) There is an authenticated security agreement that describes the collateral, OR (a) The secured party has possession or (b) control of the collateral pursuant to an oral or unauthenticated security agreement.

Question 5

Security agreement requirements

Answer 5

(1) A record (Need not be written on paper but must be stored in a record— something that others can retrieve)
(2) The record must be signed by the debtor. (Need a signature or other symbol that shows the intent of the debtor to be bound.)
(3) The security agreement must describe the collateral.
(4) The description must reasonably identify the collateral.

Question 6

Perfection requires attachment and…?

Answer 6

perfection by (i) filing a financing statement; (ii) possessing the collateral; (iii) controlling the collateral; or (iv) perfecting automatically

Question 7

BICOB

Answer 7

BICOB takes collateral free of SI even if the SI is perfected and the buyer knows.

A buyer is BICOB if they: (i) buys goods; (ii) in the ordinary course of business; (iii) from a merchant who is in the business of selling goods of that kind; (iv) in good faith; and (v) without knowledge that the sale violates the rights of another in the same goods. The buyer must give new value either by paying cash or buying on credit.

Question 8

Garage sale rule

Answer 8

Buyer of consumer goods takes free of the perfected security interest unless the secured party filed a financing statement that covered the goods before the buyer purchased it.

A consumer buyer is a person who (i) buys consumer goods for value; (ii) for his own personal, family or household use; (iii) from a consumer seller; and (iv) without knowledge of the security interest.

Question 9

Inventory

Answer 9

goods held for sale or lease, by a business, but also raw materials, works in process, or materials used or consumed in a business.

Question 10

Accounts

Answer 10

typically unsecured obligations owed to the person for goods supplied or services rendered; include the right to payment for goods sold, property licensed, or services rendered.

Question 11

Chattel paper

Answer 11

references to obligations that facilitate smaller secured transactions. (1) monetary obligation (someone made a promise to repay the loan and security interest is in something else), and (2) A security interest or a lease